I. Introduction

On March 7, 2002, the National Association of Securities Dealers, Inc. (“NASD”) through its subsidiary, The Nasdaq Stock Market, Inc. (“Nasdaq”) filed with the Securities and Exchange Commission (“SEC” or “Commission”), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),^[1] and rule 19b-4 thereunder,^[2] a proposed rule change to establish fees for new Nasdaq market data products. On April 25, 2002, Nasdaq filed Amendment No. 1 that entirely replaced the original rule filing.^[3] On July 29, 2002, Nasdaq filed Amendment No. 2 that entirely replaced the original rule filing and Amendment No. 1.^[4] On August 23, 2002, Nasdaq filed Amendment No. 3 that entirely replaced the original rule filing and Amendment Nos. 1 and 2.^[5] On September 13, 2002, the Nasdaq submitted Amendment No. 4 that entirely replaced the original rule filing and Amendment Nos. 1, 2, and 3.^[6] The proposed rule change, as amended, was published for comment in the Federal Register on September 27, 2002.^[7] The Commission did not receive any comments on the proposed rule change. On October 3, 2002, Nasdaq filed Amendment No. 5 to the proposed rule change.^[8] This order approves the proposed rule change, as amended, and notices and grants accelerated approval to Amendment No. 5.

II. Description of the Proposal

Nasdaq proposes to amend NASD rule 7010 to establish fees for new Nasdaq data entitlement packages. In its rule filings regarding SuperMontage,^[9] Nasdaq described its new data feeds and products: the Nasdaq Prime data feed, which will provide the new data for a Nasdaq entitlement package called “TotalView,” and the Aggregate Depth at Price (“ADAP”) data feed, which will provide the new data entitlement packages called “DepthView” and “PowerView”.^[10]

A. TotalView

TotalView will provide, on a real-time basis: (1) All individual attributable quote/order information at the five best price levels displayed by the Nasdaq SuperMontage system; (2) the aggregate size of all unattributed quotes or orders at each of the top five price levels, on both sides of the market, that are in the SuperMontage system; (3) the aggregate attributable and unattributable quotes and orders at each of the top five price levels, on both sides of the market, that are in the SuperMontage system; (4) the quote and order data found in the Nasdaq Quotation Dissemination Service (“NQDS”)^[11] data feed, including the best attributed quotation from each Nasdaq participant, and (5) the Nasdaq Inside Price. Nasdaq proposes to charge distributors ^[12] of TotalView $7500.00 per month. In addition, Nasdaq proposes to charge $150.00 per month per controlled device.^[13] According to Nasdaq, TotalView will use significantly more bandwidth than any Nasdaq data entitlement to date. In addition, Nasdaq believes that this data product is highly specialized and thus has not proposed a non-professional fee at this time.

B. DepthView

DepthView will provide the aggregated size at each of the top five price levels, both on the bid and the ask, within the Nasdaq SuperMontage system. Nasdaq proposes to charge $50.00 per month for each controlled device and $25.00 per month for each controlled device of a non-professional.^[14] According to Nasdaq, ( printed page 70472) DepthView requires more processing capacity to calculate its five aggregated price levels on each side of the market. Nasdaq represented that the price for DepthView was based on the increased processing capacity needed and a review of the prices charged by other major exchanges for aggregated order data.

C. PowerView

PowerView will include both the data available through DepthView and the data available in the NQDS data feed,^[15] including the best-attributed quotation from each Nasdaq participant in each Nasdaq National Market and Small Cap Market stock. Nasdaq proposes to charge $75.00 per month per controlled device and $29.00 per month per controlled device of non-professionals.

III. Discussion

The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association,^[16] and in particular, the requirements of section 15A(b)(5) of the Act,^[17] which requires that the rules of an association provide for the equitable allocation of reasonable fees, dues and other charges among members and issuers and other persons using any facility or system which the association operates or controls. Specifically, the Commission believes that the NASD's proposed charges for these new data products are reasonable when compared to similar types of services provided by other markets.^[18] Further, Nasdaq has represented that these new data products will provide more market data than currently provided and will require significantly more bandwidth and systems capacity.

Nasdaq has proposed lower fee charges for non-professionals for DepthView and PowerView. The Commission believes that should provide an opportunity for many investors to have access to the enhanced data provided by these services, which should help to increase transparency. Nasdaq represented that it may consider a non-professional fee for TotalView in the future.

Nasdaq has proposed a new definition for controlled devices. With this new definition, Nasdaq will impose charges on all devices that have the capacity to either access or to utilize a particular data feed, whether the controlled device displays the data, “receives” the data, or has the ability to utilize the data even though the data remains on another device. A distributor is required to pay the controlled device fee for all such devices that are part of a network that receives a particular data feed. Nasdaq has proposed, however, that distributors that can demonstrate that a particular controlled device in fact has no capacity to access or use the data will not be charged the controlled device fee. The Commission believes that the proposed definition of controlled device is consistent with the requirements of the Act, which permits an association to impose reasonable fees on persons who are using a facility or system of such association.

In its notice, Nasdaq represented that it will not impose any restrictions on redistribution of the data products to qualified vendors and broker-dealers that have entered into Distributor Agreements with Nasdaq. According to Nasdaq, its display requirements are covered by the Distributor Agreements. The Commission notes that this order only approves the fees proposed by Nasdaq for the data products and therefore, the Commission is not approving or disapproving the terms of Nasdaq's Distributor Agreements.

Finally, the Commission notes that Nasdaq has acknowledged that persons who subscribe to receive the new data products, to the extent that they act as a vendor, must comply with the requirements of the Vendor Display rule.^[19] Specifically, the Vendor Display rule establishes minimum requirements governing the manner in which transaction, quotation, and other market information is displayed in certain exchange-listed and Nasdaq-listed securities (“subject securities”). Generally, under the rule, vendors that provide quotation information with respect to subject securities must provide a consolidated display of quotation information from all reporting market centers for that security. Because DepthView, PowerView, and TotalView do not, individually, satisfy the consolidated display requirement of the rule, vendors, including Nasdaq itself to the extent it acts as a vendor, will need to disseminate additional quotation information along with these data products to comply with the rule. In this connection, the Commission notes that Nasdaq has put statements to this effect on its website description of these services and it its subscription contracts.

The Commission finds good cause for approving Amendment No. 5 to the proposed rule change prior to the thirtieth day after the date of publication of notice thereof in the Federal Register . Amendment No. 5 merely provides technical corrections and clarification to the proposed rule text, which was reflected in the notice of the proposed rule change. The Commission, therefore, believes that granting accelerated approval of Amendment No. 5 is appropriate and consistent with section 15A(b)(6) ^[20] and section 19(b) ^[21] of the Act.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 5, including whether it is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying at the Commission's Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of the NASD. All submissions should refer to File No. SR-NASD-2002-33 and should be submitted by December 13, 2002.

V. Conclusion

For the reasons discussed above, the Commission finds that the proposal, as amended, is consistent with the Act and the rules and regulations thereunder. It is therefore ordered, pursuant to section ( printed page 70473) 19(b)(2) of the Act,^[22] that the proposed rule change (SR-NASD-2002-33), as amended, be and hereby is approved.